Whistleblower

History of the Law

The False Claims Act, also known as the "Lincoln Law," was enacted during the Civil War to combat the fraud perpetrated by companies that sold supplies to the Union Army. Companies that were War profiteers were shipping boxes of sawdust instead of guns, for instance, and swindled the Union Army into purchasing the same cavalry horses many times. "You can sell anything to the government at almost any price you've got the guts to ask," boasted one profiteer who made millions unloading moth-eaten blankets to the military. President Lincoln strongly advocated passage of the False Claims Act. It contained provisions that allowed private citizens to sue, on the government's behalf, companies and individuals that were defrauding the government. Congress passed the statute on March 2, 1863.

The original False Claims Act assessed wrongdoers double damages and a $2,000 civil fine for each false claim submitted. Those who filed lawsuits, were entitled to receive 50 percent of the amount the government recovered as a result of their cases. The statute remained virtually unchanged until 1943 when Congress radically altered the provisions. The changes included a drastic cut in the reward, so there was less of an incentive for people to report fraud.

Another change in 1943 was a provision that prohibited false claim act lawsuits based on evidence or information already in the possession of the federal government. This provision effectively prevented whistleblowers from filing a lawsuit if any government employee had received a tip about the fraud or if any information about the fraud was contained in any government file, even if the government was not investigating the matter or trying to stop the fraud, and even if the whistleblower was the source of the government¹s knowledge. These 1943 amendments emasculated the False Claims Act, and it fell into almost complete disuse.

In the mid-1980s, Congress took another look at the law, spurred by reports of widespread fraud against the government. Defense contractor practices were receiving the greatest media attention. In part, this was due to the vastly increased defense spending spurred by the Reagan administration¹s response to the Cold War. The public was reading a of stories describing outrageous billing practices, such as the Navy paying $100 for a screw, $300 for an hammer and $500 for a toilet seat. In 1985, the Department of Defense reported that 45 of the largest 100 defense contractors -- including nine of the top 10 -- were under investigation for multiple fraud offenses. Government agencies, complained that their efforts to investigate and stop fraud were hamstrung by insufficient resources, a lack of adequate legal tools and the difficulty of getting individuals with knowledge of fraud blow the whistle for fear they would lose their jobs. Frustrated, Congress chose to revise the False Claims Act to persuade more whistleblowers to come forward and to create incentives for private attorneys to use their own resources to investigate fraud. Congress sought to create a partnership between public institutions and private citizens in keeping with the promise of greater privatization of government functions and the use of market forces to enhance government services. The amended False Claims Act of 1986 provided that whistleblowers who brought successful cases were entitled to 15 percent to 30 percent of the government¹s recovery, and their attorneys were guaranteed payment of their regular hourly fees by the defendant. Companies and other entities that defraud the government are liable for treble damages and a $5,000 to $10,000 penalty for each false claim.

When Congress amended the law, it also ensured that people who had provided information about fraud to the government could once again file a lawsuit. As more people have become aware of the False Claims Act, the number of lawsuits has jumped. More than 4,000 cases have been filed since 1986.